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ZTE

ZTE

ZTE faces US export restrictions over Iran surveillance system deal

Foreign Ministry in Beijing opposes sanctions on Chinese enterprises

PUBLISHED : Monday, 07 March, 2016, 6:58pm
UPDATED : Monday, 07 March, 2016, 6:58pm

ZTE, China’s largest listed telecommunications equipment manufacturer, could face severe component supply problems from this month, based on a reported plan by the US government to slap export restrictions on the company for alleged violations of longstanding American trade sanctions on Iran.

Shenzhen-based ZTE requested the suspension of trading in its Hong Kong-listed shares on Monday pending the release of information about the proposed action by the US Department of Commerce.

“ZTE will continue with normal operations while conducting comprehensive assessments and will be actively communicating with stakeholders,” its said.

The Foreign Ministry in Beijing expressed anger on Monday at the US Commerce Department’s plans.

“China is opposed to the US citing domestic laws to place sanctions on Chinese enterprises,” Foreign Ministry spokesman Hong Lei told a daily news briefing. “We hope the US stops this erroneous action and avoid damaging Sino-China trade cooperation and bilateral relations.”

The United States imposed restrictions on trade with Iran from 1979 following the seizure of the American embassy in Tehran. They are separate from international sanctions on Iran over its nuclear programme that were lifted in January.

We hope the US stops this erroneous action and avoid damaging Sino-China trade cooperation and bilateral relations
Hong Lei, Foreign Ministry

The US Commerce Department is poised to impose restrictions that will make it difficult for ZTE’s suppliers to apply for an export licence before shipping any American-made equipment or components to ZTE, Reuters reported over the weekend, citing documents that it had seen and an unidentified senior department official.

The export curbs on ZTE are expected to take effect on Tuesday and apply to any company worldwide that wants to ship US-made products to ZTE in China.

ZTE can file an appeal against this action, which stemmed from the US Commerce Department’s investigation of a 98.8 million (HK$840.7 million) contract between the company and the government-controlled Telecommunications Company of Iran (TCI) for the supply of a powerful surveillance system.

That deal, which was signed in December 2010, delivered a product that would make TCI “capable of monitoring landline, mobile and internet communications” across Iran, Reuters reported in 2012.

According to the 907-page packing list for the system delivered to Iran in 2011, the ZTE equipment included hardware and software components from various US technology companies, including Microsoft, Oracle, Cisco Systems, Dell and Symantec.

“ZTE has been working with relevant US government departments on investigations, maintaining constant communication with relevant departments, and is committed to fully address and resolve any concerns,” the company said on Monday. “As a responsible business, ZTE strives to ensure all operational activities adhere to international trade practices and the laws and regulations of host countries.”

Jefferies analyst Cynthia Meng said in a research note that ZTE bought many technologies and components from US suppliers for its core telecommunications network equipment and mobile phone products.

“We hold the view that, should the US commerce department restrictions ... become effective and implemented, this may cause significant supply problems to both ZTE’s equipment and handset businesses,” Meng said. “The stock may come under pressure as the company awaits more substantial details from the US Commerce Department.”

The proposed US export curbs would also apply to the mainland company’s affiliates, ZTE Kangxun Telecommunications, Beijing 8-Star and Iran-based ZTE Parsian.

Meng said the combined telecommunications network equipment and mobile phone businesses of ZTE accounted for more than 80 per cent of its revenue last year.

In its preliminary earnings estimates released in January, ZTE reported a 23.76 per cent increase in revenue last year to 100.83 billion yuan (HK$120.18 billion), up from 81.47 billion yuan in 2014, on the back of continued 4G infrastructure deployments around the world.